Use of Public Funds and the Flypaper Effect; Analysis of Regional Expenditure in Four Indonesian Provinces

Nanang Rusliana (), Dyah Ciptaning Lokiteswara Setya Wardhani and Raisa Hillia Aini Syifa
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Nanang Rusliana: Siliwangi University
Dyah Ciptaning Lokiteswara Setya Wardhani: STIE Latifah Mubarokiyah
Raisa Hillia Aini Syifa: Cipasung University

A chapter in Proceedings of the 8th Global Conference on Business, Management, and Entrepreneurship (GCBME 2023), 2024, pp 200-208 from Springer

Abstract: Abstract This study aims to analyze the use of public funds and the impact of the Flypaper Effect on regional spending in Indonesia’s four newly expanded provinces. The Flypaper Effect refers to the phenomenon where transfers of funds from central government to regions tend to be higher than the amount that should be received based on local conditions. This study involves four newly created provinces, namely West Papua, Gorontalo, North Maluku, and West Sulawesi. The research analyzed secondary data collected from various sources related to regional spending and transfers of central government funds. The analytical approaches used were panel regression and other statistical tests to identify the relationship between the use of public funds and the Flypaper Effect in the four provinces. The results showed Flypaper Effect phenomenon only occurred in the West Papua and Gorontalo Provinces. Meanwhile, in North Maluku and West Sulawesi, the Flypaper Effect phenomenon did not occur. This research provides important insights regarding public fund management policies and budget allocations at the regional level. The government needs to improve the fund transfer system and strengthen regional capacity in managing public finances can be important steps to reduce the dependence of provinces on funds from the central government.

Keywords: Flypaper Effect; Indonesian Province; Local Spending; Public Finance; Transfer of Funds; Use of Public Funds (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-443-3_29

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DOI: 10.2991/978-94-6463-443-3_29

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